Tuesday, May 5, 2009

Back in the Fall of 2008 the spreads between standard interbank lending rates (such as LIBOR) and central bank interest rates made the headlines of all major newspapers because their levels were at record highs (even compared to times of crises). Slowly but consistently, these rates have come down and are at now at levels which are the lowest historical level since those markets exist (as reported by the Financial Times today). The spread relative to central bank interest rates remains above what could be considered normal but very far from what we saw back in November 2008.

A signal that financial markets are slowly returning to normality. Of course, uncertainty still remains - including the outcome of the stress tests on US financial institutions that will be released this week.

Antonio Fatas

I am the Portuguese Council Chaired Professor of European Studies and Professor of Economics at INSEAD, a business school with campuses in Singapore and Fontainebleau (France), a Senior Policy Scholar at the Center for Business and Public Policy at the McDonough School of Business (Georgetown University, USA) and a Research Fellow at the Center for Economic Policy Research (London, UK).